Economics Editor, The Age

The commission's report is a list of ideas without an assessment of their consequences. Photo: Louise Kennerley

Who in their right mind would hit anyone with an effective marginal tax rate of 94 per cent?

Australia’s top personal income tax rate has never hit 80 per cent. Labor’s resource super profits tax would have been 40 per cent applied to a 28 per cent company tax rate. Labor feared that any more would take away the incentive to mine.

Yet the Commission of Audit wants to hit Australians moving from the dole back into the workforce with an effective marginal tax rate of 94 per cent on wages of $19,0000 to $32,000.

This would stall their reward from work at close to $19,000 even as they took second and third part-time jobs.

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It’s not as if the commission is unaware of the concept of incentives. It mentioned them more than 70 times in its report released last week. It even mentioned “incentives to work”.

At the moment, financial incentives dive as earned income passes $18,000. That’s when the 19 per cent income tax rate comes into play as well as the 60 cents by which Newstart is withdrawn for each extra dollar earned. Where one member of an otherwise employed couple is on Newstart it can amount to an effective marginal tax rate of 79 per cent. It is a minimal return for extra work, but it is something.

At recommendation 27B the commission proposes boosting the withdrawal rate from 60 per cent to 75 per cent. It says it “represents a more appropriate targeting of safety net payments”. It would also represent an effective marginal tax rate of 94 per cent.

It would all but eliminate the immediate financial return for either person in that couple taking on extra work.

Whether the commission realises this is unclear. It certainly doesn’t mention it. Its chief concern is saving the government money. That's fine as far as it goes, but at times it goes in the opposite direction to what the government is trying to achieve.

The report begins with the commission’s 10 “Principles of Good Government”. There are exactly 10: Live within your means, protect the truly disadvantaged, respect personal responsibility; those sorts of things.

What there isn’t is an attempt to address the question of what government is for and what it is trying to achieve. It is trying to achieve a lot more than protecting the truly disadvantaged. Among other things to get people into work. And to keep them alive.

Which brings us to Medicare co-payments.

It proposes them as a cost-saving measure: “From an economic perspective health care is like any other good or service in that utilisation increases dramatically when the marginal cost approaches zero,” it says.

“There would be substantial benefit in addressing health costs if the community is more aware of the real costs of using the health care system.”

Doubtless true, in the short-term.

The Commission says it may “help to reduce demand for unnecessary or overused services”.

It would. But it would also cut demand for timely services that stop people becoming sick and save costs later on.

Most of the time when we go to the doctor we don’t know whether we are seriously sick. That’s why we go. Dissuading us from going when we think we are not particularly sick will at times also dissuade us from going when it turns out we are.

The massive Rand Corporation experiment in the 1970s funded tens of thousands of visits to the doctor at different rates. Some were charged large co-payments, some small ones and some none.

Neither the Rand experiment nor a later comprehensive study by Australian health economist Jeff Richardson represent the final word. But it would be nice to think the commission even read them, or even considered the impact of its recommendations on health.

It’s the same for the Pharmaceutical Benefits Scheme. Pushing up co-payments would save the government money. But the commission’s own talk about price signals suggests it would also dissuade people from obtaining prescription drugs. That would be a good thing if we overused them. It would be a bad thing if we needed them. It’s a question worth considering.

The tragedy of the commission’s report is that virtually none of it could be adopted without more consideration. It’s a list of ideas without an assessment of their consequences.

84 comments

The so called "commission of audit" conducted by neo liberal sycophants and liberal ex staffers needs to be called out for the fraud that it is. It is a room full of carefully selected acolytes presenting a pre determined outcome to this mob in government who are dogmatically driven by blind and discredited ideology.To have some of the most highly remunerated and out of touch suits in society determining how those that need health care, education, pensions and welfare need to tighten their belts and take a haircut is obscene and obnoxious.To do so in the environment of falling revenue due to rampant tax avoidance by the wealthy and corporations, plus the crippling structural deficit made up of middle class largesse bequeathed us by johnny howard, without mention of any of this renders the "findings" of this cabal of stooges completely irrelevant.The so called commission could not help themselves, even though wages are beyond their gambit and the terms of reference they still mentioned that the minimum wage should take a hit...thus tellingly revealing their partisan ideology.sheperd's Senate testimony also completely revealing, he "reckons" going to the doctor 11 times per year is enough and those that do it only do it "because it is free" - no facts to back this up- just reckoning - yet this is part of the "recommendations".???

About this matter I don't know whether to laugh or cry

Commenter

nkelly

Date and time

May 05, 2014, 10:24PM

It's a recipe for a poorer society, which becomes a recipe for crime, domestic violence, homelessness and mental instability.

All of which will cost dearly.

Cutting the parenting payment has already led to a spike in homeless single mothers. That they can't make these connections is what's so scary. That they can't see past scraping a dollar out of someone who isn't in a position to do anything about it.

What this report is essentially recommending is establishing slums.

Commenter

sarajane

Location

melbourne

Date and time

May 06, 2014, 4:27AM

Well put, for supposedly intelligent people the commissioners are truly and profoundly ignorant. To use speculation and assumption in place of deep knowledge is pathetic. We are all ignorant but knowing we are ignorant is a sign of wisdom, something this commission lacks.

Commenter

Mark

Location

FTG

Date and time

May 06, 2014, 6:16AM

I think paragraph three is particularly relevant. If our current complex tax system allows a great many high income earners to pay less tax through a series of spurious claims and deductions, it should be rewritten. It is the very existence of the concepts of "taxable income", middle class welfare and the largesse shown to mining companies which have caused the budget imbalance, the so called "structural deficit", in a far more serious way than the support of the needy in this country.

Commenter

annie52

Date and time

May 06, 2014, 6:17AM

"...Cutting the parenting payment has already led to a spike in homeless single mothers".@sarajane, you do realise that the budget has still not been brought in, don't you?

Commenter

The Other Guy

Location

Geelong

Date and time

May 06, 2014, 6:22AM

++1 couldnt have said it better, now is the time to educate all those voters who were duped into voting for this lot and show them how by listening to this party of ideology neanderthals has led to the dismantling of the very fabric of the Australian way of life so that in the hope they will never make the same mistake again .

Commenter

rastus

Date and time

May 06, 2014, 6:44AM

Here's a simple solution Peter Martin. Everyone is only eligible for the dole for a fixed time. Say five years in their whole life. Then you would have a great incentive to get back to work and save some of your dole time for latter in life in case you need it. Would force all the long term unemployed to actually look for work.

Commenter

mh

Location

Brisbane

Date and time

May 06, 2014, 7:50AM

Well put "nkelly" and "Allie". The increasing class divide is phenomena being observed in all developed economies. This is hard to understand as economic history has proven that when policies benefit everyone - the whole nation benefits.

Commenter

Monique

Location

Sydney

Date and time

May 06, 2014, 9:28AM

Simple Maths......if you have x amount of dollars in the economy & you then have x minus 10% you will have less money going around & less money spent in business. This will lead to a recession......simple.

Commenter

Real Bazza

Date and time

May 06, 2014, 10:47AM

Real Bazza. I am speechless. For a start the budget is not the whole economy. It makes up less than a third of the total economy. Are forget it....

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